Johnson & Johnson (JNJ) recently announced that it is voluntarily recalling one lot of Risperdal (risperidone) and one lot of a 2mg generic version of the product. The recalls were based on reports regarding an uncharacteristic odor, which could have been caused by trace amounts of TBA (2,4,6 tribromoanisole). The recalls were announced in the US and Puerto Rico.
While the Risperdal recall relates to 16,000 bottles that were shipped between Aug 27, 2010 and Feb 15, 2011, the risperidone recall relates to 24,000 bottles shipped between Nov 10, 2010 and Jan 1, 2011. Johnson & Johnson estimates that approximately 1,600 and 1,200 bottles of the affected lot of Risperdal and risperidone, respectively, remain in the market. The company does not expect any supply constraints due to the recalls.
Product recalls remain a frequent occurrence at Johnson & Johnson. Products that were recalled by the company over the past few quarters include Tylenol, Benadryl, Motrin, Rolaids, Invega Sustenna, Simponi and Sudafed Pe among others.
Frequent product recalls adversely affected the performance of Johnson & Johnson’s Consumer Healthcare segment in 2010. In fact, Consumer segment sales declined 7.7% in 2010 to $14.6 billion with OTC/nutritional sales declining 19.2%. The product recalls and the suspension of manufacturing at McNeil's Fort Washington plant resulted in a $900 million negative impact on 2010 revenues.
Johnson & Johnson had submitted a Comprehensive Action Plan (CAP) in July 2010 to the US Food and Drug Administration (FDA) for the improvement of quality systems at its US manufacturing plants.
In March 2011, the FDA imposed a consent decree on a subsidiary of Johnson & Johnson. The agency imposed restrictions on the manufacturing facilities of the Consumer Healthcare Division of McNeil-PPC, Inc. Three manufacturing plants will be affected by the decree. The affected plants include the Las Piedras facility in Puerto Rico, the Fort Washington and Lancaster facilities in Pennsylvania.
The consent decree did not come as a major surprise considering the deluge of product recalls at Johnson & Johnson in the past several quarters.
Neutral on Johnson & Johnson
We currently have a Neutral recommendation on Johnson & Johnson. Even though we expect the company to continue facing headwinds in the form of EU pricing pressure, manufacturing issues and US healthcare reform, we believe Johnson & Johnson’s diversified business model, lack of cyclicality, and strong financial position will continue helping the company pave its way through tough situations.
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